Budget Update
Last week the Appropriations and Finance Revenue and Bonding Committees unveiled their response to Governor Lamont’s budget package that was put forth in February. Due to the fiscal guardrails the General Assembly continued, which include a spending cap, the legislative budget was not much different than the Governor’s. The cap ensures that the legislature holds the line on spending and pays down on astronomical pension debt while saving for a rainy day. Because of that, the Appropriations Committee only recommended a 3.7% increase in spending of the Governor’s proposed $51 million dollar budget over the biennium.
The increases were largely seen in the social services category, non-profit provider groups, transportation, and education. The committee also cut unfilled agency staff positions across the state to bring the budget in line. Most advocacy groups in CT are not happy and continue to fight for additional dollars, which will be hard to obtain as there is little to no room under the spending cap to dole out additional dollars. Currently, CT has a $1.35 billion dollar surplus and more than $3 billion dollars in the rainy-day fund. The Comptroller is expected to deposit $3.2 billion into the pension account as well.
Meanwhile, the Finance Revenue and Bonding Committee recommended only $300 million in tax cuts compared to Governor Lamont’s $500 million dollar proposal. Legislative Democrats continued to cut the two lowest income tax rates dropping the 3% rate to 2%, and the 5% rate down to 4.75%. In addition, they would like to extend the “temporary” 10% corporation business tax surcharge for another 3 years. What the Finance Committee did not continue in their proposal was a restoration of the pass-through entity tax credit to its original level. This would have returned more than $60 million dollars to around 120,000 small businesses in CT. The committee also recommended increasing the earned income tax credit from 30.5% to 45%, the corporation business tax credit for human capital investments from 5% to 10%, and increasing the maximum tax credit allowed for each construction trade apprentice under the apprenticeship training tax credit from $4,000 to $7,500.
One thing the legislature and Governor both agreed upon was to address the housing crisis by bonding over $600 million for housing projects. The funds are earmarked for building new housing as well as retrofitting old apartments in environmental justice communities and instituting homeownership programs. Although the $600 million will not solve the crisis, it is a step in the right direction while other measures to address zoning reform, renter’s rights, and fair housing may be addressed by the legislature.
Negotiations between the Governor and legislative leaders have commenced and will conclude within the next 6 weeks. With the number of tax cuts on the table and fiscal spending in check, Republicans may indeed vote in favor of the budget, making it bipartisan. The General Assembly adjourns on June 7th.